Native Americans Do Pay Taxes?

The strained relationship between the United States government and Native American tribes has led to recurring conflict and confusion over the tax issue. Simply put, Native Americans pay taxes, but there are a few quirks when it comes to how the tax code treats Native Americans.

Here's what you need to know about how taxes are applied to Native American tribes and individuals.

Differentiate tribes and individuals

The United States tax code distinguishes between the terms "Native American" and "Native American tribe." Adding the word "tribe" differentiates between an individual and a sovereign entity.

As a sovereign entity, a tribe governs itself. It is effectively an independent nation, although it is located within the borders of the United States federal government.

Native American tribes are not required to pay taxes to the US government, but the same rule does not apply to members of the tribe. When a tribe, as an entity, earns income, that income is not taxable.

However, when a tribe distributes these earnings among its members, those members can be individually taxed for these distributions.

Native Americans and federal income tax

Members of the Native American tribe have received US citizenship since 1924 and, as citizens, must pay taxes on their income. There are some exceptions, as for any type of citizen.

For example, Native Americans do not pay taxes on sources of income that are derived from government benefits. This income must represent "general welfare" payments provided by a government program, such as Supplemental Pension Income.

However, when payments are made in exchange for services of any kind, they become taxable forms of earned income. Native Americans who earn income must pay federal income taxes.

Native Americans do not receive financial assistance from the federal government just because they are Native Americans. Like any citizen, they receive assistance as needed, such as in cases of physical disability.

How State Sales Tax Is Applied

As sovereign nations, tribes have certain protections from state governments, and that includes the collection of sales taxes.

States cannot force tribes to collect sales taxes, and tribes can choose to collect their own sales taxes (although not all tribes do). As a result, if you buy goods or services on tribal land, there may or may not be a sales tax.

This allows tribes to sell things like tobacco and gasoline much cheaper than their competitors through the tribal landline, especially in states that have significant taxes on gasoline and tobacco.

At least one state, New York, has revised its tax code to allow the collection of taxes on sales of tobacco products sold on tribal lands.

The state cannot tax tribal members who buy these products on their own tribal lands, but takes the position that it can tax non-tribal members who buy tobacco products on these reservations.

Tribal casinos and state taxes

The Supreme Court ruled in 1987 that tribes could run gambling establishments on their own land without interference from state governments. Then in 1988, the US government passed the India Gaming Regulatory Act (IGRA).

This law created the National Indigenous Gaming Commission and charged it with overseeing the regulations of casinos on tribal lands.

Although these casinos are often exempt from federal taxes, Native Americans employed at the casinos must pay federal income taxes.

If the tribes transfer or distribute the gaming income to the tribe members, these “per capita” payments are also subject to federal income tax.

Although federal taxes apply to individual income and payments, some states exempt from state income tax any payments that come from an individual's own tribe, including receipts for distributed games.

California is an example of one of these states, although individuals must meet a set of circumstances (such as living on tribal lands) to qualify for the exemption.


We hope you enjoy watching this video about pay tax

Source: Indian Country Today

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